Wage Rigidity, Inflation, and Institutions (original) (raw)

Wage Rigidity, Institutions, and Inflation

SSRN Electronic Journal, 2009

A number of recent studies have documented extensive downward nominal wage rigidity (DNWR) for job stayers in many OECD countries. However, DNWR for individual workers may induce downward rigidity or "a floor" for the aggregate wage growth at positive or negative levels. Aggregate wage growth may be below zero because of compositional effects, for example that old, high-wage workers are replaced by young low-wage workers. DNWR may also lead to a positive growth in aggregate wages because of changes in relative wages. We explore industry data for 19 OECD countries, over the period 1971-2006. We find evidence for floors on nominal wage growth at 6 percent and lower in the 1970s and 1980s, at one percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that DNWR is stronger in country-years with strict employment protection legislation, high union density, centralised wage setting and high inflation.

Downward Nominal Wage Rigidity in the oecd

2006

This paper explores the existence of downward nominal wage rigidity (DNWR) in 19 OECD countries, over the period 1973-1999, using data for hourly nominal wages at industry level. Based on a novel nonparametric statistical method, which allows for country and year specific variation in both the median and the dispersion of industry wage changes, we reject the hypothesis of no DNWR. The fraction of wage cuts prevented due to DNWR has fallen over time, from 70 percent in the 1970s to 11 percent in the late 1990s, but the number of industries affected by DNWR has increased. DNWR is more prevalent when unemployment is low, union density is high and employment protection legislation is strict. JEL: J3, J5, C14, C15, E31 Keywords: Downward nominal wage rigidity, OECD, employment protection legislation, wage setting * This is a revised version of 'Downward nominal wage rigidity in Europe'. We wish to thank Lars Holden and Tore Schweder for invaluable help in the formulation of the statistical methods that we use. We are also grateful to Bill Dickens, Mike Elsby, Christoph Knoppik, Alan Manning, Halvor Mehlum and seminar participants at ESEM2003, Norges Bank, IZA Bonn, and at the universities of Oslo, Umeå and Copenhagen for useful comments to earlier drafts. Views and conclusions expressed in this paper are those of the authors alone and cannot be attributed to Norges Bank.

Downward Nominal Wage Rigidity in the OECD Working

2005

This paper explores the existence of downward nominal wage rigidity (DNWR) in 19 OECD countries, over the period 1973–1999, using data for hourly nominal wages at industry level. Based on a novel nonparametric statistical method, which allows for country and year specific variation in both the median and the dispersion of industry wage changes, we reject the hypothesis of no DNWR. The fraction of wage cuts prevented due to DNWR has fallen over time, from 70 percent in the 1970s to 11 percent in the late 1990s, but the number of industries affected by DNWR has increased. DNWR is more prevalent when inflation is high, unemployment is low, union density is high and employment protection legislation is strict. JEL: J3, J5, C14, C15, E31

No. 07‐6 How Strong is the Macroeconomic Case for Downward Real Wage Rigidity?

2013

This paper explores the existence of downward real wage rigidity (DRWR) in 19 OECD countries, over the period 1973–1999, using data for hourly nominal earnings at the industry level. Based on a nonparametric statistical method, which allows for country ‐ and year‐ specific variation in both the median and the dispersion of industry wage changes, we find evidence of some DRWR in OECD countries overall, as well as for specific geographical regions and time periods. There is some evidence that real wage cuts are less prevalent in countries with strict employment protection legislation and high union density. Generally, we find stronger evidence for downward nominal wage rigidity than for downward real wage rigidity.

Downward Nominal Wage Rigidity in Europe

2004

This paper explores the existence of downward nominal wage rigidity (DNWR) in the industry sectors of 16 European countries, over the period 1973-1999, using data for hourly nominal wages at industry level. Based on a novel nonparametric statistical method, which allows for country and year specific variation in both the median and the dispersion of industry wage changes, we reject the hypothesis of no DNWR. The fraction of wage cuts prevented due to DNWR has fallen over time, from 70 percent in the 1970s to 20 percent in the 1990s, but the number of industries affected by DNWR has increased. Wage cuts are less likely in countries and years with high inflation, low unemployment, high union density and strict employment protection legislation. JEL: J5, C14, C15, E31

How strong is the macroeconomic case for downward real wage rigidity

Journal of Monetary Economics, 2009

We explore the existence of drwr at the industry level, based on data from 19 oecd countries for the period 1973-99. We find that drwr compresses the distributions of industry wage changes overall, as well as for specific geographical regions and time periods, but there are not many real wage cuts that are prevented. More important, however, drwr attenuates larger real wage cuts, thus leading to higher real wages. We find stronger evidence for downward nominal wage rigidity than for drwr. There is evidence that real wage cuts are less prevalent in countries with strict employment protection legislation and high union density.

The Incidence of Nominal and Real Wage Rigidity: An Individual-Based Sectoral Approach

Journal of the European Economic Association, 2010

This paper presents estimates based on individual data of downward nominal and real wage rigidities for thirteen sectors in Belgium, Denmark, Spain and Portugal. Our methodology follows the approach recently developed for the International Wage Flexibility Project, whereby resistance to nominal and real wage cuts is measured through departures of observed individual wage change histograms from an estimated counterfactual wage change distribution that would have prevailed in the absence of rigidity. We evaluate the role of worker and firm characteristics in shaping wage rigidities. We also confront our estimates of wage rigidities to structural features of the labour markets studied, such as the wage bargaining level, variable pay policy and the degree of product market competition. We find that the use of firm-level collective agreements in countries with rather centralized wage formation reduces the degree of real wage rigidity. This finding suggests that some degree of decentralization within highly centralized countries allows firms to adjust wages downwards, when business conditions turn bad.

Wage Rigidity: Measurement, Causes and Consequences

The Economic Journal, 2007

Wage rigidity-the observation that wages cannot be adjusted downwards-has important implications for labour markets and macroeconomic performance. Empirical evidence on the extent, causes and consequences of wage rigidity on the individual level is relatively scant, however. This Feature presents articles that apply a new methodology to estimate the incidence and extent of nominal and real wage rigidity among the employed in three major European countries (Germany, Italy and Great Britain). The results document the pervasiveness of nominal and, particularly, real wage rigidity in different institutional and economic environments, and a recent decline in real wage rigidity. * The views expressed in this article are solely those of the authors and are not those of the Federal Reserve System or the Federal Reserve Bank of Boston. 1 See, for example the recent contributions on the propagation of monetary shocks (